My blog is focused primarily on the Theory of Constraints and how to use it to maximize the profitability of any company. I also discuss why integrating TOC with Lean and Six Sigma is the most dynamic improvement methodology available today.

Sunday, October 28, 2012

One of the prevailing messages that Bruce Nelson and I tried to
elucidate in Epiphanized is how
damaging the effects of cost world thinking can be for companies. In this
posting I’m going to focus on one of the most common performance metrics, manpower efficiency and demonstrate why
using it can lead your company down the wrong path to profitability.I hope you will see that monitoring this
metric and trying to drive it higher will not only hamper your company’s
profits, but it will actually take you in exactly the wrong direction.Let’s first look at the calculation for
manpower efficiency.

Efficiency has been
defined as a ratio of an employee's actual time to perform a function compared
to some theoretical standard time needed to complete it. For example, suppose
an employee actually produces 80 parts in one hour. Suppose now that the standard for this job is
100 products in an hour (as measured by a time study).Based upon this employee’s output, this
employee is calculated to be 80 percent efficient. Theoretically this employee has the capacity,
if he or she is producing to standard, to produce 20 more parts per hour.

So what would happen if
you were trying to achieve maximum operator efficiency within the following
simple 4-Step process (Figure 1)?

Figure 1

For
each step in this process, the processing times and the corresponding
capacities are listed.So assuming you
wanted each step in the process to operate at hypothetically, 100 %
efficiency.What would this process look
like after running at full pace for one hour (Figure 2)?

Figure 2

Here is what this process, running at 100% efficiency would look
like after running for one hour.Since
Step 1 can produce a part every 5 minutes (i.e. 12 Parts/Hour) while Step 2 can
only produce 6 parts per hour, a WIP of 6 parts stacks up in front of Step 2.

Likewise, because Step 2 runs twice as fast as Step 3, 3 units
of WIP would be stacked in front of Step 3.Steps 1, 2 and 3 are running at 100% efficiency, which is what we
wanted, but how about Step 4?Does Step
4 even have an opportunity to run at 100% efficiency?Step 4 received all three parts from Step 3,
processed them in 30 minutes, and then was forced to sit idle because it had no
parts to process during that hour.So
Step 4’s efficiency was 50%.What would
happen to this process after 10 hours of operation?

Figure 3

Figure 3 gives us a look at this process if we were attempting
to run each step at 100% efficiency for 10 hours.There would be 60 units of WIP stacked in
front of Step 2, 30 units of WIP stacked in front of Step 3 and Step 4 would
have finished all 30 units it had to work on to ship to the customer.The overall efficiency for this process is
87.5%, but think about how much cash this WIP is tying up?Does it make any sense at all to use manpower
efficiency on each individual process step rather just at the system constraint?In TOC this is known as local optimization.The key
to improving the throughput of this simple process is to focus improvements only
on Step 3.Unless Step 3’s capacity is
improved, the capacity of the entire process will remain at 3 Parts/Hour.

At least three negative consequences result from using manpower
efficiency in each individual step of this process:

1.Excessive WIP build-up throughout the process tying up excessive
amounts of cash.

2.Individual cycle times for each individual part becomes extended

3.On-time delivery deteriorates.

The efficiency model, like the one presented in the above
figures, is typically measured and implemented at the wrong system location and
usually has distressing effects on companies’ financial results. The end
results are typically the opposite of what is ex­pected to happen by companies
using this metric.If companies would
measure efficiency only at the constraint and attempt to maximize it there,
improved throughput would be the effect.

As I’ve written about
before, it’s important to appreciate that the principal focus of Cost
Accounting is per part or per unit cost
reductions. And because these perceived cost reductions are viewed favora­bly
by many companies, it is the reason why there is so much emphasis on operator efficiency?
Cost cutting or cost reductions is/are simply not the key to
profitability.There have been many
highly efficient companies that have simply
gone out of business. Have you ever heard of a com­pany that has saved
themselves into wealth and prosperity? Think about it, any perceived savings
that the sock maker (Focus and Leverage Part 154) thought he was getting were
quickly eroded by buying more raw materials and typing up all of his cash. In
fact, it ended up costing the sock maker much more money than he realized and
not saving him anything!

Many companies will categorically state that the primary goal
of their company is to make money and yet they spend the principal
portion of their time trying to come up with ways to save money. The difference between the two approaches
is blatant. The tactics you employ to make money are so immensely
different than the approach you would use to save money. Quite simply, you make
money by increasing throughput!These
two concepts are divergent in their thinking with each taking you in a completely
differ­ent course with drastically different outcomes.

In my next posting, we’ll continue to explore some of the
problems associated with traditional cost world thinking and discuss ways to
overcome them.

Saturday, October 27, 2012

Here is one more 5 Star Review posted on Amazon today. Thanks so much Vinny for your glowing remarks and please know that Bruce and I really appreciate it. That's 10 out of 10 5 Star reviews for Epiphanized.

Bob Sproull

5.0 out of 5
starsWhat a
practical book! Buy it and refer to it often!!, October 27,
2012

By

Vin

This
review is from: Epiphanized: Integrating Theory of Constraints, Lean and
Six Sigma (Paperback)

I have read a few books on TOC and TLS, and I
must say, what a great job Bob and Bruce did! They were brilliant in setting it
up in a way that has continuity and shows the next step in the process of
changing the culture of a company from the "Cost world" to the "Throughput
world."

The information is so simply put and explained, that allows the
reader to use it exactly as it is written to explain to other people and also
implement it. Also, because the message is conveyed in novel format, it gives
the reader a step-by-step reference on how to do it, not just what to do. Where
do you start? It tells you. What do you do next? It tells you. What if you
experience resistance? This book shows you how to handle it too. Do you already
implement TOC or LSS but want to take it to the next level? Guess what? It shows
you how! (Even though chances are it won't happen exactly as it did in the
book)

Because of all the information included in the appendices, and all
the other tools throughout the book, I'll definitely keep this book close by and
refer back to it. I definitely recommend this book!

Friday, October 26, 2012

In the next few series of
postings, I’m going to discuss accounting procedures and some of the problems
that Cost Accounting brings to the table.For those of you who have a copy of Epiphanized:
Integrating Theory of Constraints, Lean and Six Sigma, you will remember
the tale of the Sock Maker that Bruce Nelson wrote about so eloquently in
Appendix 2.For those of you who haven’t
yet gotten a copy of Epiphanized, I
want to share with you the tale of the Sock Maker as presented by Bruce Nelson.It just might give you a different
perspective on how some of the decisions made using cost accounting might
negatively impact your business.

The Sock Maker

In the early 1900s Cost
Accounting (CA) was in its early stages and beginning to be widely accepted and
used. For a business owner there were
many things to consider in the day-to-day operation of the business. One of the most important functions of the
business owner was tending to the daily needs of the business financial situa­tion.
Things like keeping the books, calculating the cost for raw materials, calculat­ing
labor cost and making sales were all important issues to be dealt with on a
daily basis.

It was understood by
business owners that in order to stay in busi­ness and make money the cost they
paid for the products or service rendered had to be less than the selling price
of their products or services. If it
wasn’t, then they would quickly go out of business. Then and now, the needs of
business haven’t changed much, but other things have changed.

The ideas and concepts about
what was important to measure and how to measure it were starting to form and
were being passed from one generation to the next. This was considered
important informa­tion that you needed to know in order to be successful.
Without this understanding, it was assumed that you would fail. Back then, the business structure and methods
were different than they are today. The
labor force was not nearly as reliable and most workers did not work 40 hours a
week. When they did work, they were not paid an hourly wage, but instead were
paid using the piece-rate pay system.

As an example, suppose you
owned a knitting business, and the prod­uct you made and sold was socks. The
employees in your business would knit socks as their job. With the piece-rate
pay system you paid the employees based on the number of socks they knitted in
a day or a week or whatever unit of measure you used. If an employee knitted ten pairs of sock in a
day, and you paid a piece rate of $1.00 for each pair knitted, then you owed
that employee $10.00. However, if the
employee didn’t show up for work and did not knit any socks, then you owed
nothing. In this type of work
environment labor was truly a variable cost and deserved to be allocated as a
cost to the prod­uct. It just made sense
in a piece-rate pay system. The more
socks the employees knitted, the more money they could make. Also, as the business owner your labor costs
were very precisely controlled. If
employees didn’t make any socks, then you didn’t have to pay.

In time, metrics for
calculating labor costs changed and the labor rates changed as well. Many
employees were now paid a daily rate in­stead of a piece rate. Labor costs had now shifted from a truly
variable cost per unit to a fixed cost per day. In other words, the employees got that same
amount of money per day no matter how many pairs of socks they knitted or
didn’t knit. As time went by, the
employee labor rates shifted again. This
time labor rates shifted from a daily rate to an hourly rate. With the new hourly rate came the more
standardized work week of forty hours, or eight hours a day, five days a week. With the hourly rate the labor costs now
become fixed.

With these changes it became
apparent to the sock-knitting busi­ness owner that in order to get the biggest
bang for the labor buck, the owner needed to produce as many pairs of socks as
he could in a day in order to offset the rising labor costs. The most obvious way to do that was to keep
all of your sock knitters busy all of the time making socks. In other words, efficiency was a key ingredient and needed to be increased. If the owner could make more pairs of socks in
the same amount of time, then his labor cost per pair of socks would go down. This was the solution the business owner was
looking for—reducing his costs. If
everyone was busy making more and more socks, and they could make a lot of
socks in a day, then his new labor cost per pair of socks could be reduced! This had to be the answer— look how cheap he
could make socks now! Or so he thought.

With these new found levels
of high efficiency came another prob­lem. The owner quickly noticed that he had
to buy more and more raw materials just to keep his employees working at such
high ef­ficiency levels. The raw
materials were expensive, but he had to have them. The owner knew that his past success was
directly linked to his ability to maintain such high efficiency and keep his
cost low. More and more raw materials
were brought in. More and more socks
were made. The socks were now being made
much faster than he could sell them. What
he needed now was more warehouse space to store all of those wonderfully cheap
socks! So at great expense, the owner
built another warehouse to store more and more cheap socks. The owner had lots and lots of inventory of
very cheap socks. According to his
numbers the socks now were costing next to nothing to make. He was saving lots of money! Wasn’t he?

Soon the creditors started
to show up and wanted their money. The
owner was getting behind on his bills to his raw material suppliers. He had warehouses full of very cheap socks,
but he wasn’t selling his socks at the same rate he was making them. He was just making more socks. He rationalized that he had to keep the costs
down and in order to do that he had to have the efficiency numbers high. The business owner soon realized that he had
to save even more money. He had to cut
his costs even more, so he had to lay people off and reduce his workforce to
save even more money. How did he ever
get into a situation like this? His
business was highly efficient. His cost
per pair of socks was very low. He saved
the maximum amount of money he could, and yet he was going out of business—How
come?

Reality had changed and
labor costing had changed (labor shifted from a variable cost to a fixed cost),
but the cost accounting rules did not change. The owner was still trying to treat his labor
cost as a variable cost. Even today many
businesses still try to treat their labor cost as a variable cost and allocate
the labor cost to individual products. When the labor costs are allocated to a
product, then companies try and take the next step—they work hard to improve
efficiency and drive down the labor costs per part, or unit. This erroneous thought process is ingrained in
their mind, and they believe that this action will somehow reduce labor costs. And if you can reduce labor costs, they think,
then you are making more profit. But
take just a moment and reflect back on the consequences of the sock maker’s
experience with cost savings and the high efficiency model. Are these end results anywhere close to what
the business owner really wanted to have hap-pen? Was this the real outcome business owners
really wanted from high efficiency?

In my next posting I’ll
expand upon the negative effects of the performance metric efficiency and begin another discussion on an alternative
accounting method known as Throughput
Accounting.I have posted other
discussion on TA, but I’ll try to present a bit of a twist.

Thursday, October 25, 2012

Normally I wait until someone has placed an official review of Epiphanized and then post it, but I wanted to share an email I received this week from Vinny Monteiro. He had just finished reading Bruce and my book and had to tell me about it. Thanks Vinny.

Hello Bob!

I just came back from vacation and I was able to read your book on the plane ride! I must say it's simply awesome! the amount of information is mind boggling!

I identified with Joe because I thought too that I knew TOC pretty well, but the TOC thinking process, it was very new and powerful in my point of view. The IO Map, Interference diagram, all of them were great. I need to go back and get my notebook and write down everything, because it was a lot to take in for sure. I feel like I can use your book as a "TOC implementation guide" when going to a new company.

really enjoyed how you showed more than once how to get someone familiar with TOC and get them to be on your team.

I am now reading the Appendices, but just wanted to say that I love your book, and will recommend it to others!

This posting is the final posting in this
series about replenishment systems comparing the Min/Max system to TOC’s
Dynamic Replenishment.I finished my
last blog posting by listing four criteria that
must be in place in order for TOC’s Dynamic Replenishment Model to work
effectively.The reality is that there
are actually six criteria as follows:

1.The system reorder amount needs to be based
on daily or weekly usage and SKU lead time to replenish.

2.The system needs to allow for multiple
replenish orders, if required.

3.Orders are triggered based on buffer
requirements, withpossibledaily actions, asrequired.

4.All SKUs/inventory must be available when
needed.

5.SKU
inventory is held at a higher level, preferably at central supply locations or
coming directly from the supplier/vendor.

6.SKU
buffer determined by usage rate and replenish supplier lead time. Baseline
buffer should be equal to 1.5.If
lead-time is 1 week, buffer is set at 1.5 weeks and then we can adjust the size
as required, based on historical data.

The TOC Distribution and
Replenishment Model tells us that we should hold most of the inventory at the
highest level in our supply chain and not at the lowest level like the min/max
system.Yes, we still want inventory at
our point of use, but not the majority of it.One of the major consequences of the min/max system is the distribution
of SKUs much too early especially when the same type of inventory or part is
used in several locations such as different hospital wards or units.It’s not uncommon to see, for the same SKU, an
excess in one ward and a stock-out in another all because the inventory was pushed down through the supply
chain.This does not happen in the
Dynamic Replenishment Model since stocks are pulled through the system based upon usage.

In Dynamic Replenishment we eliminate
using the minimum target as a trigger to reorder and replace it with a system
that monitors our safety buffer and usage on a daily or weekly basis and
replenish only what has been used for that time period.We also eliminate the min/max maximum order
quantity in that we only order what has been consumed rather than some maximum level.What we end up with by using Dynamic
Replenishment is much lower inventory levels, in the right location, at the
right time, with zero or minimal stock-outs.In fact, using Dynamic Replenishment we not only virtually eliminate
stock-outs, but we do so usually with 40-50% less inventory thus freeing up
huge amounts of cash.

To further make this point, I
want to use a very common example taken from Bruce Nelson and my book Epiphanized in Appendix 5.In this scenario, Bruce tells us to consider
a soda vending machine.When the supplier (the soda vendor) opens the door on a vending
machine, it is very easy to calculate the distribution of prod­ucts sold, or
the point-of-use consumption. The soda person knows immediately which inventory
has to be replaced and to what level to replace it. The soda person is holding
the inventory at the next high­est level, which in on the soda truck, so it’s
easy to make the required distribution when needed. He doesn’t leave six cases
of soda when only twenty cans are needed. If he were to do that, when he got to
the next vending machine he might have run out of the necessary soda because he
made distribution too early at the
last stop.

After complet­ing the required
daily distribution to the vending machines, the soda person returns to the
warehouse or distribution point to replenish the supply on the soda truck and
get ready for the next day’s distribu­tion. When the warehouse makes
distribution to the soda truck, they move up one level in the chain and
replenish from their supplier. This type of system does require discipline to gain the most benefits. It
assumes that regular and needed checks are taking place at the inven­tory
locations to determine the replenishment needs. If these points are not checked
on a regular basis, it is possible for the system to ex­perience stock-out
situations.

Remember
in back in Focus and Leverage Part 151 and how we demonstrated the effects of
the Min/Max replenishment method with what you see in Figure 1.What you see in Figure 1 are the results of a
simulation run by Bruce Nelson using the following criteria (For details and
actual data used please refer to Appendix 5 in Epiphanized):

1.The maximum level is 90 items.

2.The minimum reorder
point is 20 items.

3.The lead time to
replenish this SKU from the vendor averag­es 4 weeks. The average is based on
the fact that there are times when this SKU can be delivered faster (3 weeks)
and other times it delivers slower (5 weeks).

4.Usage of this SKU varies
by week, but on average is equal to about 10 items per week.

Remember, using the Min/Max replenishment
method we don’t reorder until we meet or exceed our minimum reorder quantity
(i.e. 20 items left in stock).In Figure 2 we are applying the Dynamic Replenishment Model
rules to exactly the same criteria we set for Figure 1. Bruce used the same SKU
simulation, and the same period of time, with the same usage numbers. The
difference will be in this simulation he changed the rules to fit the TOC
Distribution and Replenishment Model.That is, reorder is based on usage amount and vendor lead time rather than
minimum and maximum amount.

Figure 1

Let’s
now look at this same scenario using Dynamic Replenishment to see what it might
look like.

Figure 2

In Figure 2 Bruce assumed the following:

1.Maximum level is 90
items. (This is the start point for the current inventory when Dynamic
Replenishment was initiated.)

2.There is no minimum reorder
point. Instead reorder is based on usage and vendor lead time.

3.Lead time to replenish
is still 4 weeks.

4.Average usage of the part is about 10 per week.

There
are several key points observed in Figure 2:

1.What is most notable is that total inventory required through
time has been virtually cut in half when compared to that of Figure 1.

2.There are no stock-out situa­tions present.

3.The total inventory is maintained within a very stable range
over a long period of time.

Searching for SKUs and having to experience the negative impact
of stock-outs are a constant problem in many hospital supply-chain systems.
These problems aren’t caused by the logistics people, but are instead negative
consequences of the supply-chain system and the manner by which it is used. The concepts and methods associated with
Dynamic Replenish­ment can and will positively impact the flow and availability
of SKUs within a hospital setting.

Tuesday, October 23, 2012

In my last blog posting I laid
out the typical problems we see using the very popular Min/Max replenishment
system in healthcare.Today I want to
discuss a different approach to replenishing SKUs that my company, NOVACES,
refers to as the Dynamic Replenishment
Model (DRM).Just to refresh, I told
you the classics symptoms of the Min/Max system were:

üHaving the wrong medicines or drugs in stock
or having too much of one and too little of another.

üSignificant amounts of cash tied up in
excessive inventory.

üSignificant amounts of money lost through
drug obsolescence or even being out-of-date.

üHoarding of SKUs by nurses and other medical
personnel so that they have their own personal storage.They all mean well because they have the best
interests of the patient in mind.

So whatever system I am proposing here, it
must overcome these negatives in a significant way.Before I explain how Dynamic Replenishment
works, let’s look at some of the basic differences between it and the Min/Max
System..

First of all, the TOC’s Dynamic Replenishment
Model is a robust SKU replenishment system that allows the user to be proactive
in managing the supply-chain system.And
unlike the Min/Max System which pushes
material down the supply chain based upon a minimum re-order inventory target, the
DRM model is a pull-based system
whereby material is replenished based upon actual usage.This is, in my mind, the key differentiator
between the two replenishment methods.

The TOC Dynamic Replenishment model argues
that the majority of the inventory should be held at a highest level in the distribution system (supply chain) and not at
the lowest level as mandated by the
Min/Max model.This is an important
difference because many times materials get distributed too early to users
resulting in stock-outs in one part of the supply chain and potentially excess
inventory in another.

Unlike the Min/Max system, instead of using
the minimum amount in inventory to trigger the reorder process, the DRM is
triggered by daily usage and supplier lead times to replenish.This quality, plus the location of the
inventory stock, virtually eliminates the aforementioned stock-outs in parts of
the supply chain.The DRM eliminates the
maximum reorder amount as well and replaces it with an increase in the order
frequency, again based upon usage.This
change in order frequency based upon usage, effectively reduces the volume of
on-hand inventory, typically on the order of 30-50%!

Ok, so now that we have seen some of the key
differences between the Min/Max system and the DRM system, let’s now focus on
how Dynamic Replenishment overcomes the negative symptoms of the Min/Max system
that I started with in today’s blog.

As stated earlier, in Dynamic Replenishment stock
is positioned at the highest level in the distribution system so that all available inventory can be used to satisfy
demand at the downstream multiple points of use.Since the location of the stock is positioned
in this way, this allows more frequent ordering to be completed.The central warehouse or stock room sums the
demand usage of the various usage points so that larger order quantities can be
accumulated at the central stock location sooner than at each separate location.

In the DRM buffers are
positioned at points of potential high demand variation and stocked and
restocked at levels determined by stock on hand, demand rate and replenishment
lead time.Order frequency is increased
and order quantity is decreased to maintain buffers at optimum levels and, as a
result, stock-out conditions which cause interruption to the flow of patients
is usually completely avoided.

Rather than relying on some minimum stock
level to trigger a reorder of SKUs, ordering is determined by the depletion of
the buffer stock. So effectively, how
much to order and where to distribute the available stock is determined by the
status of the buffer for that SKU.The data
for depletion of buffer provides signals to determine when and how much to
modify buffer size.

Order urgency is based upon the depletion of
the buffer and is therefore used to set ordering priorities.The DRM order method accounts for buffer depletion and local demand
information so the right mix of SKUs is ordered and SKUs are distributed to the
priority locations.This is one of the
major differences between the two replenishment methods.

There are key criteria that must be in place
in order for TOC’s Dynamic Replenishment Model to work effectively as follows:

1.The
system reorder amountneeds to be based
on daily or weekly usage and SKU lead time to replenish.

2.The
system needs to allow for multiple replenish orders, if required.

3.Orders
are triggered based on buffer requirements, withpossibledaily actions, asrequired.

4.All
SKUs/inventory must be available when needed.

In my next posting, I’ll demonstrate why the
Dynamic Replenishment works so well and show you just how good your results can
be.

Monday, October 22, 2012

In my last blog posting I ended
by saying that there it is possible to both reduce inventory and protect
throughput at the same time.But before
I do so, let’s go into a bit more depth on why what a typical healthcare
facility is using today isn’t working so well.

Most, if not all, businesses are linked one
way or another to some kind of supply chain.They need SKU’s or raw materials from somebody else in order to do what
they do and pass it on to the next system in line until it finally arrives at
the end consumer.In a hospital
environment this means that a doctor will prescribe a treatment that requires something
to bring the patient back to a healthy state.Maybe it’s a prescription for a medicine or maybe even an orthopedic
item, so he writes the prescription and waits for the order to be filled and
then given to his patient.Hopefully
what the doctor has prescribed is in the stockroom so the patient can begin the
treatment.

For many organization the supply chain/inventory
system of choice is one often referred to as the Minimum/Maximum (MIN/MAX) system.In this type of supply chain system SKUs (or
inventory) are evaluated based on a projected need and usage (a forecast), and
some type of maximum and minimum levels are established for each item.The typical rules that are followed for these
min/max systems are:

§Rule
1: Determine the maximum and minimum levels for each item

§Rule
2: Don’t exceed the maximum level

§Rule
3: Don’t reorder until you go below the minimum level

The foundational assumptions behind these
rules and measures are primarily based on the belief that in order to save money
and minimize your expenditures for supply inventory, you must minimize the
amount of money you spend for these items.Remember the conflict resolution diagram from my last posting?The assumption here is that the purchase
price per SKU (unit) could be driven to the lowest possible level by buying in
bulk and the company would save the
maximum amount of money on their purchase.The reality is that there always seem to be situations of excess
inventory for some items and of stock-out situations for others.So why is it that even though we have plenty
ofinventory, these stock-outs continue
to happen?Let’s take a more in-depth look
at the typical rules for managing this Min/Max Supply System.

1.The system
reorder amount is usually always the maximum amount no matter how many SKUs
are currently in the point-of-use storage bin.The thinking here is that in order to obtain the maximum discount, we
must always buy in bulk.

2.Most
supply systems only allow for one order at a time to be present in the system
for a specific SKU.

3.Orders
for SKUs are triggered only after the minimum
amount has been exceeded.That is,
for example, if the minimum level for a drug is set at 1,000, when it goes
below 1,000 it can be re-ordered.

4.Total
SKU inventory is held at the lowest possible level of the distribution chain, the
point-of-use (POU) storage location.Typically this is at the hospital unit or ward.

5.SKUs
are inventoried once or twice a month and orders placed, as required.

Graphically, Rules 1, 2 and 3 look like what
you see in Figure 1.The problem with
this system is that it’s prone to conditions of stock-outs on a fairly routine
basis as depicted in Figure 2 where the pattern repeats itself.

Figure 1

Figure 2

In Figure 2 we see that even though there
inventory in the system, we still have the stock-out situation happening. Rules 4 and 5 are graphically illustrated in
Figure 3.

Figure 3

In Figure 3 we see that parts are distributed
from the supplier and pushed down
through the links in the supply chain which ends up clogging the supply chain
with disorganization and ineffectiveness.The classic symptoms that we see using the Min/Max system are:

üHaving the wrong medicines or drugs in stock
or having too much of one and too little of another.

üSignificant amounts of cash tied up in
excessive inventory.

üSignificant amounts of money lost through
drug obsolescence or even being out-of-date.

üHoarding of SKUs by nurses and other medical
personnel so that they have their own personal stash when needed.They all mean well because they have the best
interests of the patient in mind.

So if ordering in bulk quantities and having
lots of inventory on hand isn’t the solution, then what is?In my next posting I’ll introduce you to what
my company (NOVACES) calls Dynamic
Replenishment.

About Me

Lean Six Sigma Master Black Belt - TOC Jonah - author of three books: Epiphanized: Integrating Theory of Constraints, Lean and Six Sigma - The Ultimate Improvement Cycle - Maximizing Profits Through the Integration of Lean, Six Sigma and the Theory of Constraints, Process Problem Solving - A Guide for Maintenance and Operation's Teams - New book, Epiphanized has beeen released in January 2012.